In addition to increasing its own direct originations of subprime credit cards, CompuCredit Corp. announced last week that it will acquire a lender specializing in the subprime sphere for $106 million, a deal that should close late this quarter, according to Chief Executive Officer David Hanna.

While the company has roughly $140 million in available financing through its Merrill Lynch securitization facility, CompuCredit will use equal parts cash and debt to finance the acquisition.

Equity investors questioned that decision during the company's first-quarter conference call last week. According to J. Paul Whitehead, chief financial officer, the company has intentionally reduced its borrowings against its securitization facilities to keep the lines open for further acquisition-related activity later in the year.

Following its earnings call, CompuCredit filed a registration statement to issue up to $350 million in common stock, preferred stock or debt.

The increased focus on originations, and the planned acquisition of a direct lender, may represent a diversion from its recent growth track. In 2002, CompuCredit changed its strategy from direct origination to portfolio acquisition, generally purchasing distressed pools at a discount. These have included participations in two Providian Financial portfolios and the remaining Fingerhut catalog loan portfolio, all of which were subsequently securitized.

Last year CompuCredit established a dedicated subsidiary, called Jefferson Capital Systems, which purchases charged-off receivables. In 2003, Jefferson purchased $2.1 billion, at face value, of defaulted receivables for $40.7 million. The company collected $64.6 million by the end of the year. Most of Jefferson's purchases were from securitization trusts in which CompuCredit had acquired retained interests.

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